Lawson v. F.D.I.C.
| Decision Date | 08 April 1993 |
| Docket Number | No. 92-2429,92-2429 |
| Citation | 3 F.3d 11 |
| Parties | Mary E. LAWSON and Matt Lawson, Plaintiffs, Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Defendants, Appellees. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
Edward T. Joyce with whom Deborah I. Prawiec, Raymond A. Fylstra, Joyce and Kubasiak, P.C., Chicago, IL, William D. Robitzek, David G. Webbert and Berman and Simmons, P.A., Lewiston, ME, were on brief, for appellants.
Jerome A. Madden, Counsel, F.D.I.C., with whom Ann S. DuRoss, Asst. Gen. Counsel, F.D.I.C., and Richard J. Osterman, Jr., Senior Counsel, F.D.I.C., Washington, DC, were on brief for appellee, F.D.I.C.
Roy S. McCandless with whom P. Benjamin Zuckerman, Patricia Nelson-Reade and Verrill & Dana, Portland, ME, were on brief, for appellee, Fleet Bank of Maine.
Before TORRUELLA, CYR and BOUDIN, Circuit Judges.
The facts of this case are straightforward. In January 1991, plaintiffs Mary and Matt Lawson purchased five one-year certificates of deposit ("CDs") from the Maine Savings Bank, representing a deposit payment in each case of approximately $92,000. Each CD had an interest rate of 7.9 percent per year, giving the CDs a maturity value of $100,000 each. A CD reflects a deposit coupled with an agreement by the depositor to leave the funds in the bank for a fixed period. It appears that Maine Savings Bank was in financial difficulty when the CDs were sold to the Lawsons and that the interest rate offered was a favorable one.
Maine Savings Bank was declared insolvent on February 1, 1991, and the Federal Deposit Insurance Corporation was appointed receiver. As it often does, the FDIC transferred certain accounts to a healthy bank, in this case defendant Fleet Bank of Maine. 1 The accounts transferred in this case included deposit accounts such as the Lawsons' CDs. The purchase and assumption agreement between Fleet Bank and the FDIC authorized Fleet Bank to reduce the interest rates paid on the transferred accounts after fourteen days, provided that the reduced rates did not go below the rate customarily paid by Fleet Bank on passbook savings accounts and provided that the depositors were given the opportunity to withdraw the funds without penalty.
On February 13, 1991, Fleet Bank notified the Lawsons that it had accepted Maine Savings' deposit accounts and would honor the original interest terms on the CDs until February 22, but thereafter would reduce the interest rates pursuant to a schedule enclosed with the notice. The notice gave the Lawsons the option of withdrawing their deposits without penalty, or maintaining the accounts at the lower rate. The Lawsons elected to withdraw the funds and bring this suit in Maine state court against Fleet Bank for breach of contract, denominating it a class action. Fleet Bank then impleaded the FDIC, and the FDIC removed the action to federal court. The Lawsons completed the cycle by filing their own suit against the FDIC, which was then consolidated with the removed suit against Fleet Bank.
The district court granted Fleet Bank's motion for summary judgment on the ground that the purchase and assumption agreement authorized Fleet Bank to reduce the interest rate. It also granted the FDIC's motion to dismiss, holding that the FDIC was not liable to the Lawsons for more than the deposits and accrued interest, which Fleet Bank had already paid. 807 F.Supp. 136. The Lawsons then took this appeal. We consider first the claim against the FDIC and then that against Fleet Bank, and we affirm the district court as to both.
The FDIC is best known in its "corporate" role as the statutory insurer of funds deposited in federally insured financial institutions, generally up to $100,000 per account. See 12 U.S.C. Sec. 1821(a). The FDIC may also be appointed to take over the operations of a failed institution, acting as receiver or conservator depending on the functions that it has been assigned. See id. Sec. 1821(c). The powers and liabilities of the FDIC, enlarged substantially by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), Pub.L. No. 101-73, 103 Stat. 183, differ in the FDIC's various manifestations, such as insurer and receiver, and must be considered separately.
As insurer, the FDIC was required by statute to guarantee the Lawsons' "insured deposits," either by paying them in cash or "by making available to each depositor a transferred deposit in a new insured depository institution ... in an amount equal to the insured deposit of such depositor." Id. Sec. 1821(f)(1). 2 A "deposit," in turn, is defined generally as "the unpaid balance of money or its equivalent received or held by a bank or savings association in the usual course of business...." Id. Sec. 1813(l)(1). The statute allows the FDIC to define the term further by regulation. Id. Sec. 1813(l )(5). Pertinent FDIC regulations fix the amount of an "insured deposit" as
the balance of principal and interest unconditionally credited to the deposit account as of the date of default of the insured depository institution, plus the ascertainable amount of interest to that date, accrued at the contract rate ..., which the insured depository institution in default would have paid if the deposit had matured on that date and the insured depository institution had not failed.
Here, the FDIC as insurer complied with the statute and regulations by transferring the Lawsons' deposit accounts to Fleet Bank, which in turn made available to the Lawsons the principal plus interest that had accrued at the contract rate up to February 22, 1991. This was actually a step beyond the agency's legal obligation as insurer, since it was obliged to pay accrued interest only to the date of Maine Savings Bank's default. Thus the FDIC more than satisfied its duty as insurer. The Lawsons do not appear to claim that they were short-changed under the insurance provisions. Instead, they argue that the FDIC is liable as the inheritor of the contractual obligations of the Maine Savings Bank, that is, as the receiver for the failed bank. 3
In resolving this claim, the district court, at FDIC's urging, relied upon 12 U.S.C. Sec. 1821(i)(2), and the FDIC reasserts that statutory defense in this court. That provision imposes a ceiling on FDIC liability as to most creditor claims against the FDIC "as receiver or in any other capacity" where a bank has failed. Broadly, the FDIC's maximum liability is the amount that the creditor would have received if the institution had been liquidated outright. The district court said that "[a]s already demonstrated above," the Lawsons in liquidation would have received their original deposit plus interest at the contract rate only to the date Maine Savings became insolvent. 4
It is a miracle that anyone, let alone a busy district judge, can cope with the profusion of arguments that the FDIC and Resolution Trust Corporation unleash in cases of this kind. To some extent they reflect the complexity of the statutory provisions but, after seeing a number of these cases, one may come to believe that the agencies' litigating style has some role in the confusion. Like a giant squid releasing ink, agency counsel pour out arguments and citations, heaping defense upon defense, sometimes without heed for the merits of the contention. It is not clear that this approach serves the long-run interests of bank regulators who have a stake in coherent and consistent interpretation by the courts.
In all events, we think that the FDIC in this instance led the district court astray. There is no indication in its opinion of any evidence that, had the Maine Savings Bank been liquidated and the assets allocated among creditors, the assets would have been inadequate to pay the Lawsons a portion of the future interest they now claim. On appeal, the FDIC's brief tells us that the creditors will receive only about 77 cents on the dollar; but that information fails to show that the Lawsons would have received nothing on their future interest claims in liquidation and it may even suggest that they might have received something. Section 1821(i)(2) could cut off the Lawsons' entire claim for future interest only if it were shown that, in liquidation, there would be no money available even for partial payment of that claim. 5
It appears that the district court had in mind its prior discussion in its opinion which shows, by analysis that we have condensed in our own earlier discussion, that the FDIC's insurance obligations were limited to returning to the Lawsons their deposits with accrued interest. But Maine Savings Bank's obligations to the Lawsons were broader: they included the payment of future interest, at the contract rate, for the entire one-year period. The FDIC inherited the obligation to pay that future interest when it became receiver. The damages might be mitigated once the Lawsons recovered their deposit and could relend the money; but some loss would still be suffered to the extent that the current interest rate fell below the favorable rate promised by Maine Savings Bank.
Nevertheless, we believe that the FDIC as receiver is not liable for this differential on future interest between the market rate and the apparently greater rate promised by Maine Savings Bank. As we recently explained in Howell v. FDIC, 986 F.2d 569, 571 (1st Cir.1993), FIRREA gives the FDIC as receiver the right to disaffirm or repudiate contracts that the bank entered into prior to receivership if the FDIC decides "in its discretion" that performance will be burdensome and that disavowal will promote the orderly administration of the failed bank's affairs. 12 U.S.C. Sec. 1821(e)(1). 6
The Lawsons argue that if a repudiation occurred, it was not done by the FDIC but by Fleet Bank, and that the statute does not allow such a delegation of repudiation authority. This argument has some surface appeal...
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